Rise And Fall of Nigeria’s Banking Services By Tayo Oke

Once upon a time, you had a transaction to make, you walked into the local branch of your bank, you were attended to with courtesy; you did what you had to do, and walked back out. In the same vein, you had a somewhat hazy business idea, which you broached with the cashier, he referred you to their business manager, who then sat with you to examine the pros and cons of the idea. With some tweaks here and there, he thought it was a good idea on which the bank could lend you money. He made a further appointment with you to come back for a review, after which the loan for your business was granted, and the bank stayed with you for the next couple of years to nurture the business. That was a snippet of the post-independence banking service in this country. The customer base of the banking industry was, of course, much smaller than it is now, but so too were the resources available to look after them. Crucially, however, the banks saw themselves as partners in the national development effort of the country at large.

Then, there came the blessing (or curse, depending on your sensitivity) of oil and expansion of trade at the dawn of the 1970s, coupled with the Arab-Israeli War of 1973, which led to the quadruple of oil prices. Nigeria became awash with redundant cash right through to the 1980s, to the point where a certain head of state once bemoaned a unique Nigeria dilemma as being not where to obtain money, but how to spend it. The gates thus opened up to all comers for banks, and they sprang up in their dozens.

New banks sprang up then as we have political parties rushing to the Independent National Electoral Commission for registration in contemporary Nigeria. As with the so-called “mushroom parties” often talked about, so too many “mushroom banks” sprang up alongside established and well-funded ones. Before the consolidation of the banks concluded in December 2005, it was commonplace to have a family house type of bank structure, where the husband was chairman, the wife, chief executive officer, and the son, general manager. The International Monetary Fund’s induced liberalisation policy in the 1980s, across the developing world, made it easy for any journeyman operator to obtain a licence to start a bank. Banking thus became less customer-focused, and more centred around shareholder and founders’ interest. The golden age of banking as service to community and customer was gone. The liberalisation idea did not last long though, but it lasted long enough to inflict a lot of collateral damage on the Nigeria’s financial architecture as a whole. Instead of being partners in development, the banks became white elephants and even parasitic to the country’s economic wellbeing. The restructuring that followed in 2004, under the then Governor of Central Bank of Nigeria, Prof Chukwuma Soludo, was as timely, as it was within the rubrics of the international standards set by the “Basle Committee” of bankers based in Switzerland.

The restructuring, or “consolidation” as it was then known, significantly brought down the number of banks in Nigeria from almost 100 to the current 25 adjudged to have met the new N25bn recapitalisation requirement. The weeding out of the “mushroom banks” though highly essential has produced its own snag: there are now too many customers chasing too few banks. This is illogical, as it is an inversion of capitalism. It is very difficult to come out of the premises of the average bank in this country today with a good customer experience for the day and time spent. Queues for the simplest transaction are usually long, the hallways and customer “service” desks are crowded like it is in the marketplace at times, and the Automated Teller Machines are beset by “network problems” of all sorts leading to unseemly scrambles and jockeying for position in queues. Simple current account openings take over six months to complete in some banks, as befuddled bank officials shuffle customers from one help desk to another. The CBN, under Governor Lamido Sanusi, hurriedly introduced the “cashless policy” initiative as a panacea to the bank overcrowding. It is typical of such initiatives to be introduced in complete oblivion of the reality of life on the ground. A society which has more than 80 per cent of its population live in darkness through power shortage suddenly wants to shove a cashless policy idea down the people’s throats? What are the computers going to run on? What are the small businesses going to run on? Are policymakers aware of the phenomenon of people in this country literally scrambling to find somewhere to charge their handsets upon entering an office or a room with electricity because the power in their phone has dried out sometimes for several days? Consequently, the solution to the decline in banking services in this country is not to coral customers into the cashless El Dorado that does not and cannot exist in the absence of the requisite infrastructure, but to make the existing banks more competitive by ushering in more participants into the sector. In my view, the number of banks in this country per population is abysmally low.

Just think of it, at 25 banks, and a population of 170 million, Nigeria has one bank per seven million people. Clearly, the country needs at least three times the number of banks it currently has. London alone has more banks inside it than the whole of West African countries combined. What about America? The state of California alone has close to 300 local banks, and hundreds more of foreign banks, almost totalling the number of licenced banks in sub-Saharan Africa combined. Well, those are advanced industrialised nations, you may be forgiven for thinking. Okay, what about Ghana then? With a population of a little over 27 million, and 27 banks, Ghana has roughly one bank per one million people. A similar comparison applies in the case of South Africa, Kenya, and even more so, Egypt. This is buttressed by the fact that Nigeria runs the largest economy in Africa! We need more, not less participants in the banking industry to mobilise capital, encourage local industries especially in the agriculture sector, boost consumer activities, generate employment through loans for self-development etc. The pendulum has swung too far away from ordinary bank customers in this country since the banking consolidation.

In the final analysis, our existing banks are no longer risk takers; they are too ensconced in quick money, government loan deals, Treasury bills, executive bonuses etc, to care. They behave like the Biblical Pharisees who know the price of everything but the value of nothing. The fewer the participants in the banking industry, the less competitive they have become. We need the number of solid and solvent (not “mushroom”) banks commensurate with our country’s population and economic needs. The added competition that comes with that will bring the banks back to basics, in addition to driving up their optimal level of efficiency.